There is a difference between “Income” & “Revenue”. Income of any form is called Revenue, whereas, Revenue represents any income or expenditure. Revenue expenditures refer to the amount spent on routine expenses of the business e.g. salaries paid to employees, Rent of office paid etc. As revenue expenditure provides benefits for the current accounting period, therefore, it is debited as an expense in the Trading and Profit & Loss Account.
Features of revenue expenditures
Revenue expenditures have the following features:-
- These expenditures are of recurring nature.
- These expenditures are made during the trading activities.
- Amount spent in such expenditures is relatively small.
- The period of benefit of making revenue expenditure is limited to an accounting period.
Rules for determining revenue expenditures
Any expenditure can be termed as Revenue if it is incurred for one of the following purposes:
1. Routine expenses
Routine Expenditures incurred during the daily conduct of business and have benefit for less than one year.
Salaries paid to employees, Rent of office, interest on Capital, Selling & Marketing expenses etc.
2. Maintenance of fixed assets
Such expenditures incurred to maintain fixed Assets are termed as Revenue.
Repairs, Renewals, depreciation etc
3. Consumable items
Expenditures incurred on consumable items or goods and services for resale in their original or improved shape will be considered Revenue.
Purchase of Raw materials, office stationery etc.
At the end of the year, there may be some revenue items still in hand e.g. stock, stationery etc. These items are transferred to the next year.
To make further clarity of Revenue expenditures a list is hereby given which includes a few examples:
- Salaries and wages paid to the employees.
- Rent and Rates for the factory or office premises.
- Depreciation on plant & Machinery.
- Consumable stores.
- Inventory of Raw material, work-in-progress and finished goods.
- Insurance Premium.
- Taxes and Legal expenses.
- Repairs, Renewals and replacements for the purpose of maintaining the existing fixed assets of the business in working order.
- Interest on loan borrowed for business.
- Cost of oil to lubricate machines.
- Cost of merchandise bought for resale.